517994779547795Justice Department: Airline Merger Will Make Prices SoarA move by the Department of Justice may ground a $11 billion merger between American Airlines and U.S. Airways. A suit filed in federal court claims the merger would hurt competition and make flying more expensive for consumers. Jeffrey Brown talks to Phil Mattingly, who has been covering the story for Bloomberg News.2013-08-13 18:03:00disablednGkX1zrwbgA224884224866http://www.pbs.org/newshour/bb/cities-prepare-tensions-confederate-statues/How cities prepare for tensions over Confederate statuesStatues of Confederate leaders have been removed in the night, torn down by protesters and seen as a flash point for communities, especially in the South. What challenges do cities face when trying to deal with controversial memorials, as well as the backlash? Hari Sreenivasan talks with Lt. Ryan Lee of the Portland Police Bureau and Mayor Jim Gray of Lexington, Kentucky.2017-08-17 06:00 pmhttp://d3i6fh83elv35t.cloudfront.net/newshour/wp-content/uploads/2017/08/RTS1BW52-e1502817962305-320x196.jpg3003863276D2O-s_hcOPc224747224753http://www.pbs.org/newshour/bb/secessionist-black-nationalist-pledge-peaceful-dialogue-charlotteville/How a secessionist and a black nationalist started talkingIn light of tensions and violence in Charlottesville, a secessionist and a black nationalist from Charleston, South Carolina, came together to make sure that what happened is not repeated in their hometown. Jonathan Thrower of the Charleston Black Nationalist Movement and James Bessenger of the South Carolina Secessionist Party join Hari Sreenivasan to discuss what led them to open a dialogue.2017-08-16 06:00 pmhttp://d3i6fh83elv35t.cloudfront.net/newshour/wp-content/uploads/2017/08/dialogue--e1502929318561-320x196.jpg3003828610FggajXhN1oQ224746224752http://www.pbs.org/newshour/bb/president-trump-defended-charlottesville-marchers-heres-saw/What Trump said about Charlottesville vs. what we sawPresident Trump made a series of statements at Trump Tower about the participants in the deadly weekend protests in Charlottesville. The NewsHour's P.J. Tobia, who was at the protests, offers a fact check on the president's account.2017-08-16 06:00 pmhttp://d3i6fh83elv35t.cloudfront.net/newshour/wp-content/uploads/2017/08/RTS1BICG-e1502569184690-320x196.jpg300382824275dhKMHUXww

A move by the Department of Justice may ground a $11 billion merger between American Airlines and U.S. Airways. A suit filed in federal court claims the merger would hurt competition and make flying more expensive for consumers. Jeffrey Brown talks to Phil Mattingly, who has been covering the story for Bloomberg News.

JEFFREY BROWN: The U.S. Department of Justice moved today to block the latest and largest merger in the airline world. It means the deal joining American Airlines and U.S. Airways may be grounded permanently.

JEFFREY BROWN: It was all smiles and backslaps six months ago as the airlines’ CEOs announced plans to merge.

DOUG PARKER, U.S. Airways: This really is about taking two airlines, putting them together and providing better service to customers. Our view is, it increases competition; it doesn’t decrease competition.

JEFFREY BROWN: But, today, the Justice Department said it will hurt competition. Justice and attorneys general from six states plus the District of Columbia filed suit in federal court to ground the $11 billion merger at the 11th hour. The department said such a merger would leave just three so-called legacy carriers and make flying more expensive.

The new American would have been the world’s largest carrier, dominating some U.S. domestic markets. At Washington’s Reagan National Airport, it would control 69 percent of the space and 63 percent of the routes.

In a conference call with reporters, Assistant Attorney General William Baer said the merger would — quote — “substantially lessen competition.” He labeled the deal “pretty messed up. It’s bad for consumers.”

562933458434584What Does the $11 Billion Dollar Airline Merger Mean?American Airlines and US Airways announced Thursday the two companies will merge, creating the world's largest airline. The price tag for the deal is $11 billion. Holly Hegeman, airline industry analyst, and Charlie Leocha, director of the Consumer Travel Alliance join Jeffrey Brown to discuss the merger in-depth.2013-02-14 18:06:00disabledhideBeFNqHGMjxw

Related Video

For its part, AMR, the parent company of American, said in a statement: “We will mount a vigorous defense and pursue all legal options in order to achieve this merger.”

Employees, creditors, shareholders of the two airlines, plus the European Union, had already OKed the deal. And the Justice Department did approve a series of earlier deals, including Delta’s acquisition of Northwest in 2008, United’s merger with Continental in 2010, and Southwest Airlines’ purchase of AirTran a year after that.

Phil Mattingly is covering the story for Bloomberg News and joins me now.

Phil, this came as a surprise, to those of you — at least to those of you following this, huh?

PHIL MATTINGLY, Bloomberg News: Absolutely.

Absolutely. If you want to have an example, all you need to do is look at the marketplace, U.S. Airways down more than 13 percent today, AMR, the parent company, down more than 43 percent in over-the-counter trading.

We spoke to some analysts who up to a couple weeks ago were rating this at a 99 percent chance this deal would approved. And there’s a reason. That is that there’s really no precedent for the Justice Department to step in.

As was mentioned, we have had a series of big merger deals, consolidation in this industry. And I don’t think anybody really expected this.

JEFFREY BROWN: Tell us more about the reasoning of the Justice Department. What specifically did they say that would make this anti-competitive?

PHIL MATTINGLY: The antitrust chief today had a conference call with reporters, and his main point was a couple things.

One, this is going to increase fares, increase those fees that I think frustrate everybody on bags, legroom, those sort of things, but also it will lead the airlines to decrease service in some specific areas. Most importantly, I think, when you look at U.S. Airways, they have a program that they have been utilizing where they look to deliberately undercut these legacy airlines, the three airlines that they mainly compete with on one-stop flights, trying to undercut nonstop flights.

I think what they’re saying is, there’s no more economic rationale if this deal goes through for U.S. Airways to continue that program.

JEFFREY BROWN: And we’re talking about DOJ, Department of Justice, but support from the states and the District of Columbia. What specifically are they looking at or what are they arguing?

PHIL MATTINGLY: Well, there’s a lot of state interests here.

You look at hubs, you look at direct flights. You have Texas, which, oddly enough in the last couple weeks, has not been the greatest friend of the Justice Department. Their attorney general was happy to get on board on this, obviously Dallas being the headquarters.

So what you have is you have state interests, you have got jobs, you have prestige. And states really see this as an opportunity to get on board and block something that will have a negative impact on their state economy.

JEFFREY BROWN: Part of the reasoning from Justice is saying that these two are big and strong enough to go it alone, in spite of what they themselves say, I guess, right?

PHIL MATTINGLY: Right.

And it’s an interesting statement because American Airlines, obviously, is coming out of bankruptcy right now. Actually, in 48 hours, they’re supposed to introduce their reorganization plan for approval in New York.

JEFFREY BROWN: The timing is quite interesting, huh?

PHIL MATTINGLY: Very interesting.

But it’s something to think about. Over the last couple quarters, even after a decade of really big losses, the airline industry has done great, and that includes American Airlines and U.S. Air, both with records numbers over the last couple quarters.

JEFFREY BROWN: Now, as we said and you just repeated there, that the department has approved a number of big mergers in the last few years. So, today, how are they differentiating this one from those?

PHIL MATTINGLY: It’s interesting.

Bill Baer, the chief of the antitrust division, said, we look at each case on a deal-by-deal basis. However, we looked at — while they were doing this, during the investigation, they looked back at the deals that have led up to this one, that have led up to the current consolidation.

And what he said was basically, we have found this marketplace to be anti-competitive right now. So while they might not be regretting those deals or trying to look back and set new precedent, what they are doing is deciding that those deals, while they might have thought they were OK at the time, have led them to become a major problem for this current merger.

JEFFREY BROWN: It’s interesting because they’re saying, yes, we allowed those, those were fine, but no more now because of the world that’s been created because of those.

PHIL MATTINGLY: Yes. Right. And I think what analysts are really trying to figure right now is, OK, is this the new paradigm? Are we shifting from a time where these mergers because of the good — for the good of the industry the Justice Department was happy to let these go through generally very quick with few changes, if any at all.

Are we now to the point where mergers are done? This is one merger too many?

JEFFREY BROWN: Now, American says it’s going to appeal. What does that mean? What happens next?

PHIL MATTINGLY: Well, we know the process is, is that these guys have been in the room. Both companies and the Justice Department, have been in the room for the months leading up to this kind of presenting their proposals, their arguments.

What American Airlines said today through their statement through AMR is they said that this is going to court now. They feel good. I think U.S. Airways also had a statement out where they were saying, look, this delays things for a little bit, but we feel good. Companies have come through this before.

Now, there’s a couple of issues that come up. One is the Justice Department says they want this in court, they believe the best interest is to stop this. This also sets them up from a negotiating perspective to maybe take out certain parts, require changes to this deal, require concessions before they allow this to go forward.

JEFFREY BROWN: So it could still go forward.

PHIL MATTINGLY: Absolutely.

JEFFREY BROWN: Absolutely.

So, in the meantime, the airlines, consumers and travelers, what, status quo?

PHIL MATTINGLY: Pretty much.

So consumer advocates thrilled with this. They have been pointing to the consolidation in the marketplace for a long time, saying that this is playing a big role in those bag fees that everybody

hates. They’re thrilled right now. In terms of the big changes, are we going to see — when you go online at Kayak.com or something, are you going to see any big changes? No, not at the moment.

I think both airlines feel like they have got a good argument that this is a pro-competitive merger that would actually bring down prices. We will see if the Justice Department agrees.

JEFFREY BROWN: And let me just ask you finally, briefly, you cover Department of Justice. How does this decision fit into any larger antitrust strategy that you watched over the last few years? Is it a surprise in that context or does it fit?

PHIL MATTINGLY: You know what is interesting?

The division at the Justice Department is under new leadership. Over the last eight months, they have got a new head. And it’s aggressive, veteran gentleman in Bill Baer, who has got a lot of experience. And while he really is kind of complimented around the legal arena for being fair, everybody almost to a person says he’s aggressive.

And I think he’s bringing — brought kind of a new tact, a new perspective to the division. And while it’s not going to be a massive shift in policy, I think they’re looking for opportunities to get in and challenge issues if they feel like they’re really anti-competitive.

PBS NewsHour allows open commenting for all registered users, and encourages discussion amongst you, our audience. However, if a commenter violates our terms of use or abuses the commenting forum, their comment may go into moderation or be removed entirely. We reserve the right to remove posts that do not follow these basic guidelines: comments must be relevant to the topic of the post; may not include profanity, personal attacks or hate speech; may not promote a business or raise money; may not be spam. Anything you post should be your own work. The PBS NewsHour reserves the right to read on the air and/or publish on its website or in any medium now known or unknown the comments or emails that we receive. By submitting comments, you agree to the PBS Terms of Use and Privacy Policy, which include more details.